Busytown Corporation, which manufactures shoes, hired a recent college graduate
ID: 2473795 • Letter: B
Question
Busytown Corporation, which manufactures shoes, hired a recent college graduate to work in its accounting department. On the first day of work, the accountant was assigned to total a batch of invoices with the use of an adding machine. Before long, the accountant, who had never before seen such a machine, managed to break the machine. Busytown Corporation gave the machine plus $753 to Dick Tracy Business Machine Company (dealer) in exchange for a new machine. Assume the following information about the machines.
Busytown Corp.
(Old Machine)
Dick Tracy Co.
(New Machine)
941
For each company, prepare the necessary journal entry to record the exchange. (The exchange has commercial substance.)
Account Titles and Explanation
Debit
Credit
Busytown Corporation
Dick Tracy Business Machine Company
Busytown Corp.
(Old Machine)
Dick Tracy Co.
(New Machine)
941
Explanation / Answer
Journal Entries in Busy Town Corporation Journal Entry Debit Credit Profit and Loss A/c…………..Dr 144 To Old Machine A/c 144 (Being loss on old machinery arrived during the exchange with new machine and transferred to Profit and Loss Account) Dick Tracy Co. A/c……………..Dr 941 To Old machine A/c 188 To Bank A/c 753 (Being Old Machine exchanged for new machine at fair value and remaining amount paid through bank) New Machine A/c……Dr 941 To Dick Tracy A/c 941 (Being New machine rececived) Working on Loss of exchange for Old machine Machine cost 642 Less: Accumulated Depreciation -310 Net Value 332 Less: Fair Value -188 Loss Transferred to P&L A/c 144 Journal entries in Dick Tracy Business Machine Company Bank A/c……………Dr 753 Old machine A/c………..Dr 188 To Busy Town Corporation A/c 941 (Being Old Machine and amount received from Busy town corporation in exchange of new machine) Busy Town Corporation A/c…….Dr 941 To New Machine A/c 598 To Profit on Sale of New Machine A/c 343 (Being New machine given to Busy town corporation at fair value and profit on exchange transferred to P&L A/c)
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